Tips to file your tax return while avoiding fees, scams

by Jacob van Cleef, Consumer Watchdog Associate

March 3, 2021

You have six weeks to file your income tax return for 2020. Every year, it seems there are more issues to watch out for. They fall into two main categories: Scams looking to get your personal information, and unexpected fees that can add up when trying to file your return using software or professional preparers. Below are tips to keep in mind this tax season.

Avoiding fraud and scams

File as early as possible:

One way to stop an imposter from filing a return for your income tax refund is to file your return as early as possible. The Internal Revenue Service (IRS) won’t process a second return under your Social Security number for the same year.  

Watch out for emails supposedly from the IRS: 

The IRS does not send emails with links for you to click on. The IRS sends mail to your address, so emails asking you to do something should not be followed. 

Some of these emails will pretend to be reminders for your tax return and ask you to click on a link that asks for personal information to confirm that you can get money back from the IRS. Other emails will ask for the recipient to open a link to get a tax document that actually infects the computer with malware.

If you get an email you suspect is fraudulent, don’t open it. If possible, forward it to phishing@irs.gov. If you incur any monetary losses, you can report it to the Treasury Inspector General for Tax Administration and file a complaint with the Federal Trade Commission.

You should particularly watch out for emails, calls or texts that supposedly will help you get the next COVID economic impact payment or ones you've missed. You can recoup your payments on your own. Here's how.

Steer clear of calls asking for personal information:

You may get calls that pretend to be from the IRS or a tax advocate. Whether it be a robot or a person calling you, do not trust them. The IRS will not call you out of the blue. Likewise, if you’re looking for a tax preparer, you should reach out to a tax preparation service and not the other way around. As with other random calls that you get, do not give out personal information to an unexpected caller.

Avoid tax preparers who don’t sign returns:

Some people hire professionals to file their taxes for them. Those preparers must sign that they prepared the taxes for someone else. If the preparer does not sign the forms, there may be something wrong with the form. The preparer could be intentionally filling out the forms incorrectly, so it looks like you qualify for more money returned than you should because the preparer wants to be paid more without having any fault for filling out your forms incorrectly.

Consider creating an online account with the IRS:

As with filing a tax return for a certain year, someone can’t open an online IRS account under your Social Security number if you’ve already done it. With an online account, you can access your tax records through the Get Transcript service.

The amount of information available on your online account is considerable, including: 

  • Key information from your most recent tax return.

  • The amount you owe.

  • Your payment history and any scheduled payments.

  • Notices sent by the IRS.

  • COVID economic impact payments issued, if any.

  • Details of any payment plan.

We wouldn’t recommend accessing your account outside of your home or another secure location. But if you’re reluctant to create an account because you think it makes you vulnerable to hacking: If someone can hack your account, they could probably create it to begin with if you don’t.

The IRS uses the credit bureau Experian to validate a financial account number in your name. If your Experian file is frozen, you’ll need to thaw it for a day to create your IRS account or request an activation code by U.S. mail. The IRS says it will take about 10 days to get your code; it’s good for 30 days.

The IRS says it takes about 15 minutes to register. The IRS requires the following information to create an account:

  • Social Security Number or Individual Tax Identification Number (ITIN)

  • Tax filing status and mailing address.

  • One financial account number linked to your name, such as: credit card (last 8 digits (no American Express, debit or corporate cards), student loan (account number from your statement. The account number may contain both numbers and letters. No symbols), mortgage or home equity line or loan, auto loan.

Watch out for fake websites:

Don’t just nonchalantly search for “IRS” if you’re trying to get your tax information or file using the IRS’s Free File service. The IRS site is irs.gov. I did a search for “IRS web site” and the first three sponsored results were not to irs.gov. You certainly don’t want to enter personal information on scam sites. 

 
Dealing with fees from tax preparation services

Recognize that easier probably means more expensive:

When a tax preparation service or software offers to do extra, that can add fees. Some of these fees can be more obvious than others. It can cost more to get the service of a real person to talk through the tax return process with. Receiving alerts can cost money. It can even cost money to pay for the service with your tax return instead of out of pocket when you submit your tax return. A vital way to find hidden fees and remove them is to look at the final bill before you submit your tax return. Any small add-on or choice you make can have a fee attached to it that you may not be aware of.

Watch out for additional forms may require more money:

Many taxpayers like to use FreeFile through the IRS. This service, which operates out of a partnership between the IRS and private software companies, offers free federal tax filing on an IRS partner site to taxpayers with adjusted gross incomes of $72,000 or less. The service also offers state tax filing (which can be free in some cases), guided preparation and software that does all of the math. Still, though, you need to be mindful of add-ons that can cost money.

Many online tax preparation companies advertise free or low-cost federal tax returns and state tax returns. Those prices could be for only the basic forms. 

When looking at what company to choose for filing your taxes, you should take into consideration what forms you need to fill out. If you paid for student loans, paid tuition for a dependent, made money from the stock market or found yourself in other situations, you may need additional forms that may require you to pay fees that can make what you thought would be a free process into something that costs you $80 or more.

Realize refund anticipation loans aren't really advantageous

Refund anticipation loans, which involve giving a taxpayer a loan upfront against her tax return, are offered by many of the major tax preparation companies. But they've been made largely unnecessary because of technology. It used to be that if someone filed a return and was due a refund, it would take four to six weeks to get a check in the mail. In recent years, a return filed electronically can yield a refund direct-deposited in your bank account in just a few days. These loans generally are interest-free but involve fees to prepare the return.

So if you're paying to have your return prepared just to get your refund now, you're basically paying to use your own money, getting it just a few days or maybe a week earlier than you'd get it in your bank account. Meanwhile, the tax prep service gets its loan repayment from your refund, which generally goes to the preparer, not you. This can cause problems later, as some have experienced with their COVID impact payments going to tax preparers or getting misrouted.

Another potential problem: If the preparer makes a mistake and over-estimates your refund and gives you a loan that exceeds your refund, you could get a surprise demand for repayment of the balance, which could carry more fees if not repaid quickly.